Customer Lifetime Value driven IT

If you don’t know what a customer is worth, you don’t know what you should spend to get or keep one. How can IT be re-engineered and run with core focus on maximizing Customer Lifetime Value?

Top 5 Learning Points

How can companies align the technology decisions to the business need, linking customer value to their success?

In order for IT to be successful, the companies need a 360 degrees view of the customer and their references.

How can firms leverage data for deeper understanding of customer preferences, and how they can institutionalize this process?

How can companies ensure a pragmatic usage of technology so that while it helps customer service, it does not distract from a direct interaction?

How to ensure that IT and business are on the same page, so customer data collected is useful for creating the strategy, and there is less redundancy.

Show Notes

Customer lifetime value does bring out the return on IT investment and we have to move in that direction, even if we can’t get there right away.

Business never internalizes IT and their plans, even as the IT leadership sits in a closed room, they are still taking bits and bytes and the geek talk. How can we involve them on the front end?

There’s still that last mile to go there in making sure that we’ve coordinated what’s happening on the technology side with how it can work best for business.

There are a lot of metrics available now, but at a higher level in the organization, having a compelling story that links together the metrics is important.

There are only three ways to grow revenues, acquire new customers, keep the customers you’ve got longer, grow the gross margins from your customers to cross selling and up selling.

Sharing customer reference data with front line teams add great value to their ability to engage better.

Managing the mix of small, medium, large and very large customers is a very smart strategy for resilience during difficult business times.

While IT helps in creating and retaining customer lifetime value metrics, at no point should it overpower simple communication between service and customer.

Transcript Summary

Companies need to create a strategy to collect data, collate customer preferences and ensure that all business planning is done on the basis of this metrics. While technology can be the driver for creating the customer value metrics, it really will need to be identified by business teams internally. The first step would be to have teams that can analyze the customer needs and convert it into structured data. Deriving a 360 degrees view of the customer- preferences as well as forecasting of buying patterns helps to strategize better. Sharing this data with the front line teams ensures the insights from this data are ploughed back into creating much more meaningful customer relationships, hence better market value. Teams need to be on the same page as the business focused teams. The role of technology here is to aid in data collation as well as dissemination of insights. The IT tea, There are two significant aspects to this exercise of assigning a metric for customer value. The key is to identify data that is actually relevant, and to be able to convert that into actionable insights. The second thing is to be able to follow up on these insights with backend support that will never leave an unsatisfied customer.

Armed with a customer value metric, the front line staff should be able to provide near perfect service. However, it is important that while technology has a stake in this exercise, at no point should it become a distraction for human interaction.

In terms of business environment, today is the best time to think through some of these different options, in terms of how it’s used to get the needle point right ahead on customer lifetime value.

Transcript:

Sanjog: The topic for today is Customer Lifetime Value Driven IT, and our guest for the show is Ruth Bolton, Professor of Marketing at the WP Carey School of Business, Arizona State University.

In today’s digital age, IT can touch and improve anything. Everything in the business can be improved using IT. It’s always been a rather fuzzy science, where we do not know, if the investment in terms of dollars or efforts justifies the returns in dollars and cents. This has been an age-old problem. But can we use the customer lifetime value, a metric used in at a business level as a quantitative metric to assess the IT value delivered?

We would like to discuss different angles, but then we have to know the business needs, if we are focused on customer lifetime value. We say we are aligned to it, but there may be certain areas where we’re not to doing it. What would those areas be?

Ruth: I agree with you. We’re not where we need to be. The challenge right now is, a lot of times when we make technology investments and manage technology, we’re focusing on metrics that are intermediate outcomes. As you say, we’re not actually thinking about customer lifetime value or the ultimate goal, we need to be aware of how we’re making progress in the right direction. But my managers tell me, they have a shortage of people who understand both the IT side and the customer side, the business side. It’s because the environment changed so rapidly. They haven’t been able to hire the people that have both those capabilities – the technology and the business side.
But you’re right, customer lifetime value does bring those things together and we have to move in that direction, even if we can’t get there right away.

…customer lifetime value does bring those things together and we have to move in that direction, even if we can’t get there right away

Sanjog: When we do talk even in business terms, just for us to be able to measure customer lifetime value, we need different functions. We could start with marketing or customer service or internal operations, in a certain alignment. Then you can develop that formula for customer lifetime value. But then do you think we are even thinking of that direction, even at a business level, let alone IT?

Ruth: Well, you have to remember where most companies started, which is being product focused. With the idea of customer lifetime value, we started looking at all the products that the customer bought, summing across all revenue streams, products, and services. That was a radical new thought for a lot of people. A lot of companies didn’t have all that information in one place, they were siloed. They were organized around products and their technology and their databases were set up that way. So there’s been a huge effort and we’ve come a long way. We can now have a 360-degree view of the customer, so you can actually understand the customer from all these different lenses. You can look at it from the marketing, from the IT, and finance and all other touch points. But it’s been difficult to get there, moving away from legacy systems and siloes that we had in the past, to get this viewpoint.

A lot of companies didn’t have all that information in one place, they were siloed. They were organized around products and their technology and their databases were set up that way. So there’s been a huge effort and we’ve come a long way.

Sanjog: Even today, it’s not that we have moved away from products. Yes, service has become a little more complex, but you still have to be able to deliver that customer lifetime value. What you mentioned is that we’ve put systems, it doesn’t start giving you the measure. You have to have the right measures in place to identify with systems that you put. Whether it’s a third-party vendor or you who builds it, do you think we actually have the goal of a clear measure? I don’t see either business or IT, whether a product or a services company, to have that focus.

Ruth: No. One question that might get to the core of this is, with the technology in databases and systems you have right now, are you able to cross sell and up sell? That would validate all the different ways that you’re serving the customer. If you only have a partial view of the customer, you aren’t able to do that well. That’s almost like a test question. Do you have this 360-degree view of the customer, or only a tiny slice of what they are and what the relationship is with you?

Sanjog: When you are looking at customer lifetime value in general, it’s like a dollar value of a customer relationship. It’s not always it is easy for you to put a number on things. Is that why we have been shying away or even dropped the ball on this because, it’s not happening or did we not try hard enough?

Ruth: It also depends on the industry sector. For example, if you’re in financial services, they tend to be far ahead on this because their data is excellent since they use upgraded systems. We have to think about the challenges of different sectors. But the one thing that I would say is, let’s think for a minute about what the definition of customer lifetime value is. We could call it the dollar value of the relationship. What is that stream of cash flows over time in the future? What is that stream going to be? How much is it? It’s not the current value of the customer, but what you’re getting from the customer this year, or in the future? It’s calculated by taking the revenues and subtracting the cost, so what’s that net profit stream?

The problem is, of course, most firms can’t calculate that. They’re trying to create a proxy measure, some kind of surrogate as an indicator of what that dollar value of the customer is. That’s okay, actually. The trap is to oversimplify a bit on that because when you talk about customer lifetime value, you’re forecasting about that stream of cash coming from the customer in the future. Of course, a forecast depends on certain assumptions and conditions which can change. There isn’t one customer lifetime value measure for each customer, there’s actually different forecasts for different conditions.

Now stop and think if you’re in the technology area, the forecast is going to depend on how you use that technology. It’s going to depend on the strategy how you leverage those capabilities. That’s where people start to go wrong. They decide too soon on what they think is a good approximation of customer lifetime value. They don’t consider if the forecast can be used for retaining this customer. That’s a challenge.

…a forecast depends on certain assumptions and conditions which can change. There isn’t one customer lifetime value measure for each customer, there’s actually different forecasts for different conditions.

Sanjog: To that end, what you mentioned definitely is an issue. When we say we want to forecast, it may be a challenge because their systems doesn’t give them enough data or they have not figured out their strategy. It could be the fact that they don’t want to put a stake in the ground. What do you think is happening at the business level in the corner office?

Ruth: For starters, costs are always easier to understand than revenue potential. There’s a tendency with technology to focus on cost minimization, cost to serve, how to reduce cost. That’s good, but the issue is that though we’ve got through a lot of the productivity issues, there’s now a need to change the focus to think more about the revenue potential of strategy and of technology. Technology can do many things, but it’s not a substitute for employed labor. But, it can be a way to leverage your employees so that they can generate much, much more revenue. There are ways to customize the customer experience as well. There has to be a shift away from thinking about saving money. For this, there are some ways we can leverage this data and information, to deliver better customer experiences and thus, generate extra revenues.

Sanjog: I would want to give benefit of doubt to all people in business and technology that they would love to do what you just mentioned. Deploying a strategy of service on a monthly or a quarterly basis is becoming the norm because people are going agile, pushing their projects forward. But within half a year, you can see fundamental shifts in the way a customer would look at a product, buy or not buy a product or look at a newer version. . It’s becoming ...
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Sanjog: The topic for today is Customer Lifetime Value Driven IT, and our guest for the show is Ruth Bolton, Professor of Marketing at the WP Carey School of Business, Arizona State University.

In today’s digital age, IT can touch and improve anything. Everything in the business can be improved using IT. It’s always been a rather fuzzy science, where we do not know, if the investment in terms of dollars or efforts justifies the returns in dollars and cents. This has been an age-old problem. But can we use the customer lifetime value, a metric used in at a business level as a quantitative metric to assess the IT value delivered?

We would like to discuss different angles, but then we have to know the business needs, if we are focused on customer lifetime value. We say we are aligned to it, but there may be certain areas where we’re not to doing it. What would those areas be?

Ruth: I agree with you. We’re not where we need to be. The challenge right now is, a lot of times when we make technology investments and manage technology, we’re focusing on metrics that are intermediate outcomes. As you say, we’re not actually thinking about customer lifetime value or the ultimate goal, we need to be aware of how we’re making progress in the right direction. But my managers tell me, they have a shortage of people who understand both the IT side and the customer side, the business side. It’s because the environment changed so rapidly. They haven’t been able to hire the people that have both those capabilities – the technology and the business side.
But you’re right, customer lifetime value does bring those things together and we have to move in that direction, even if we can’t get there right away.

…customer lifetime value does bring those things together and we have to move in that direction, even if we can’t get there right away

Sanjog: When we do talk even in business terms, just for us to be able to measure customer lifetime value, we need different functions. We could start with marketing or customer service or internal operations, in a certain alignment. Then you can develop that formula for customer lifetime value. But then do you think we are even thinking of that direction, even at a business level, let alone IT?

Ruth: Well, you have to remember where most companies started, which is being product focused. With the idea of customer lifetime value, we started looking at all the products that the customer bought, summing across all revenue streams, products, and services. That was a radical new thought for a lot of people. A lot of companies didn’t have all that information in one place, they were siloed. They were organized around products and their technology and their databases were set up that way. So there’s been a huge effort and we’ve come a long way. We can now have a 360-degree view of the customer, so you can actually understand the customer from all these different lenses. You can look at it from the marketing, from the IT, and finance and all other touch points. But it’s been difficult to get there, moving away from legacy systems and siloes that we had in the past, to get this viewpoint.

A lot of companies didn’t have all that information in one place, they were siloed. They were organized around products and their technology and their databases were set up that way. So there’s been a huge effort and we’ve come a long way.

Sanjog: Even today, it’s not that we have moved away from products. Yes, service has become a little more complex, but you still have to be able to deliver that customer lifetime value. What you mentioned is that we’ve put systems, it doesn’t start giving you the measure. You have to have the right measures in place to identify with systems that you put. Whether it’s a third-party vendor or you who builds it, do you think we actually have the goal of a clear measure? I don’t see either business or IT, whether a product or a services company, to have that focus.

Ruth: No. One question that might get to the core of this is, with the technology in databases and systems you have right now, are you able to cross sell and up sell? That would validate all the different ways that you’re serving the customer. If you only have a partial view of the customer, you aren’t able to do that well. That’s almost like a test question. Do you have this 360-degree view of the customer, or only a tiny slice of what they are and what the relationship is with you?

Sanjog: When you are looking at customer lifetime value in general, it’s like a dollar value of a customer relationship. It’s not always it is easy for you to put a number on things. Is that why we have been shying away or even dropped the ball on this because, it’s not happening or did we not try hard enough?

Ruth: It also depends on the industry sector. For example, if you’re in financial services, they tend to be far ahead on this because their data is excellent since they use upgraded systems. We have to think about the challenges of different sectors. But the one thing that I would say is, let’s think for a minute about what the definition of customer lifetime value is. We could call it the dollar value of the relationship. What is that stream of cash flows over time in the future? What is that stream going to be? How much is it? It’s not the current value of the customer, but what you’re getting from the customer this year, or in the future? It’s calculated by taking the revenues and subtracting the cost, so what’s that net profit stream?

The problem is, of course, most firms can’t calculate that. They’re trying to create a proxy measure, some kind of surrogate as an indicator of what that dollar value of the customer is. That’s okay, actually. The trap is to oversimplify a bit on that because when you talk about customer lifetime value, you’re forecasting about that stream of cash coming from the customer in the future. Of course, a forecast depends on certain assumptions and conditions which can change. There isn’t one customer lifetime value measure for each customer, there’s actually different forecasts for different conditions.

Now stop and think if you’re in the technology area, the forecast is going to depend on how you use that technology. It’s going to depend on the strategy how you leverage those capabilities. That’s where people start to go wrong. They decide too soon on what they think is a good approximation of customer lifetime value. They don’t consider if the forecast can be used for retaining this customer. That’s a challenge.

…a forecast depends on certain assumptions and conditions which can change. There isn’t one customer lifetime value measure for each customer, there’s actually different forecasts for different conditions.

Sanjog: To that end, what you mentioned definitely is an issue. When we say we want to forecast, it may be a challenge because their systems doesn’t give them enough data or they have not figured out their strategy. It could be the fact that they don’t want to put a stake in the ground. What do you think is happening at the business level in the corner office?

Ruth: For starters, costs are always easier to understand than revenue potential. There’s a tendency with technology to focus on cost minimization, cost to serve, how to reduce cost. That’s good, but the issue is that though we’ve got through a lot of the productivity issues, there’s now a need to change the focus to think more about the revenue potential of strategy and of technology. Technology can do many things, but it’s not a substitute for employed labor. But, it can be a way to leverage your employees so that they can generate much, much more revenue. There are ways to customize the customer experience as well. There has to be a shift away from thinking about saving money. For this, there are some ways we can leverage this data and information, to deliver better customer experiences and thus, generate extra revenues.

Sanjog: I would want to give benefit of doubt to all people in business and technology that they would love to do what you just mentioned. Deploying a strategy of service on a monthly or a quarterly basis is becoming the norm because people are going agile, pushing their projects forward. But within half a year, you can see fundamental shifts in the way a customer would look at a product, buy or not buy a product or look at a newer version. . It’s becoming a race. When it becomes a race and when everything is in flux, so should we throw forecasting out of the window?

Ruth: No, and the reason is that a lot of companies have made the mistake of saying, “Okay, this is too hard. I’m going to use a measure of current profitability. The customer that I’m making the most from now is where I should be focusing more of my resources on. But a few common-sense examples tell you, how bad that strategy is. It means for example if you’re a bank, you wouldn’t do anything for customers at early stages in life cycle even though they’re the ones that need car loans, need mortgages for house. You’d be focusing on those elderly people with big savings already. You have no choice since the current profitability is not a very good measure. The question is, can you do a little better than that? Can you at least add in a few other things? That’s what we’re talking about.

But I doubt many customers or many companies are thinking of more than a of couple years at the outset.

Sanjog: But how do you take bite sized chunks of where your business is today and where it can go. You may have cut to the bones and build the best productivity business case. But lifetime value means not only measuring but maximizing it. That in turn means innovation, and finding new ways to serve a customer. So, how does an organization envision that area in a fast paced business environment?

We want to be able to tackle it in a way to think there’s a science to this madness.” Is there?

Ruth: Well, we want to keep it to several simple things. What customer lifetime value tells you is, there’s only three ways to grow revenues. Acquire new customers, keep the customers you’ve got longer, grow the gross margins from your customers to cross selling and up selling.

Once you think that way, you start thinking of not only customer lifetime value metric but also ways of approximating those three things with metrics that I have of my own. I am then pushing those metrics out to my employees so that they can use them.

There is a great example where Best Western Hotels took the new metrics from social media, and made them available to their front-line employees. They saw how it actually made you could keep customers and so, they could keep their jobs. It made those employees much more customer focused. Sometimes we can do some simple things to get new customers, keep the ones you’ve got or grow the margins.

What customer lifetime value tells you is, there’s only three ways to grow revenues, get new customers, and keep the customers you’ve got longer, growth, the gross margins from your customers to cross selling, up selling.

Sanjog: Yes, you’re right, we could do simple things. I would like to give credit to the technology leaders and their business counterparts that they are looking at simple things. That’s the first bite of the apple, but what about the second, third, and fourth bite, so that they can eat it all? When would they reach a point which could be a measurable progress in moving the direction of customer lifetime value centric IT and business?

Ruth: Well, you have to be very careful here because we’re not actually trying to maximize the revenues we get from each individual customer. If you’re an IT person or in the C-Suite, you’re actually thinking about customers as a portfolio. You should be thinking about your mix of customers. One thing that technology helps with is that we actually know a lot more about our customers than we ever knew before. We can think a little bit about having the right kind of mix, in particular some customers that have variable revenue streams and others have much more stable revenue streams. We need to start thinking about finding and keeping the right customers to get that right mix of customers.

In fact, it may be more sensible to get rid of this Holy Grail of somehow extracting every last penny out of every customer. That not only doesn’t make sense but it’s actually not the correct thing to do.

Sanjog: It’s about the way you define a right customer. On one hand, we want to keep the right customer, but we want to stay relevant, and yet stay relevant. That means we would need to innovate to come up with services which will be in demand, at least by the majority. That means, the customer profile often would start shifting what you started with, say two years ago or five years ago. That means some customers who you had acquired a couple of years ago are no longer fitting the profile. It’s like a boat with a hole in it where the water keeps coming in through some leakage or a glass with a hole in it. You keep filling but it keeps going out. When that happens, you’re never going to maximize the customer values because you’re changing the customer profile. It’s not that we want to, it is the nature of the environment that we are in today. To your point of keeping the right customer that definition keeps changing, what do you do then?

One thing that technology helps with is that we actually know a lot more about our customers than we ever knew before. We can think a little bit about having the right kind of mix, in particular some customers that have variable revenue streams and others have much more stable revenue streams.

Ruth: Earlier, people used to think very simplistically, of ranking customers from most valuable to least valuable, and apply an 80/20 rule. So, assuming 20% of my customers are generating 80% of my revenues, I am only going to keep those best customers. Most managers found out that wasn’t a good idea. You actually need some of those lower customers because they help cover your fixed cost, and they give good word of mouth. Some of them are willing to pay a price premium, and most of them are very easy to serve. We have to go beyond that. We need to think, what is it that we can do to touch customers and then make them behave differently to increase those revenue streams. We need to find a way of thinking about what can be done to move the needle to spend smarter, not spend more. Then I’m able to realize more revenues from those customers.

There’s a great example of this that I love to tell, it’s about IBM. At one time, it focused on the largest customers they had. It didn’t feel that it could do a good job of serving small and medium customers. But it felt it had to figure out a strategy for that. Eventually, it did. It turned out to be good that it did, because when the financial crisis hit, the balancing of the mix of customers that they had ensured they were much less vulnerable to some of these major shifts that were taking place in the economy. During the Great Recession, they came out much better than some of the other firms. It’s not a pie in the sky to talk about managing the mix of your customers, especially if you’re B2B (Business to Business). You’re thinking about managing large, medium, and small customers all the times.

It’s not sort of pie in the sky to talk about managing the mix of your customers, especially if you’re B2B (Business to Business). You’re thinking about managing large, medium, and small customers all the times.

Sanjog: With very typical B2B example, a business stays as a business, the core may change or may not. Now would you think the formulas, the approaches, the strategies, and the related technology that you would use to maximize customer lifetime value, would be the same as you would do in other areas which could be more B2C, where the people are more fickle? This could be because it would be easier than someone like a retail. There, they know a customer used to come and shop all the time but XYZ item has gone out of fashion. Since that’s what we used to specialize in, and have the best inventory, but that’s gone out of fashion. So these guys are going to move on to something else.

Ruth: With B2C, there’s been a lot of talk about customer engagement and the customer experience. One of the problems that focusing on customer engagement which is most of those are non-purchase behaviors. A lot of the new social media metrics are doing that. Though there’s nothing wrong with having engaged customers, but it’s more important if customers are sharing information about you. Word of mouth is wonderful but, you want it to lead to purchases. When you’re in the B2C environment, it’s important not to see this shiny new idea of having customers engaged, and take your eye off the ball.

Though there’s nothing wrong with having engaged customers, but it’s more important if customers are sharing information about you. Word of mouth is wonderful but you want it to lead to purchases. When you’re in the B2C environment, it’s important not to see this shiny new idea of having customers engaged, and take your eye off the ball.

I’ve been working with a global retailer, which were bricks and mortar. They are also delivering online now, but they weren’t delivering as engaging, as satisfying experience online as they were in their stores. Of course, there are big companies out there, like Amazon that do a pretty good job of that. Yes, you have to be engaging but you also still have to convert those engaging experiences into revenue streams. Sometimes managers may get a little distracted by some of those intermediate metrics around new media and forget to keep an eye on the conversion rate. How much it is actually coming over into revenue streams?

Sanjog: You’ve mentioned about seeing if you can influence the customer or push them to buy what you still offer. Do you think in today’s day and age when they have choices, is that even a possibility?

Ruth: Well, what you want to think about is that you’re partnering with the customer. You can’t think of it as pushing the customer in any way. That’s not a strategy that’s going to work in today’s environment where the customer has so much more control and much more choice, with the ability to be looking at your competitors’ website, within one click. It means that the customers’ expectations are very, very high. What you want to think about is partnering or collaborating to give the very best experience to that customer. Now, sometimes, and this is the tricky part. Sometimes the goals of the customer and your goals don’t align. In which case, the partnering isn’t going to be very good. You have to think about, “Well, is that the space I want to be operating in?” You want win-win. You want to be in that win-win spot, they get a lot of benefits, you get a lot of benefits. You have to think of it as collaborative and look for ways to align yourself with the customer’s goals and generate revenues in that way.

The days of being able to say, “Gosh, there’s nobody else for you to go, so you’re stuck with me” are gone. The only organization that can still say that is the IRS.

Sanjog: Where can IT help and drive the information or help collector process, analyze, and get some meaningful insights for the business? When will business see it as resource and will be able to also learn what it means to be driven by customer lifetime value. Could IT play a lead role or you should still be an enabler for anything that business says? So when they play passive, they never connect to this concept of CLV. Yes, IT is there and it has got potential to be able to provide the analytics, the tools, and the support so that the business can try to find out all that they want to about the customer. In that process, they can create a formula or figure out a way to do a customer lifetime value calculation? But when businesses are more focused on this, how do they understand and develop this customer lifetime value centric strategy? Business never internalizes IT and their plans, even as the IT leadership sits in a closed room, they are still taking bits and bytes and the geek talk. How can we involve them on the front end?

Ruth: I’ve been working with a global retailer, which were bricks and mortar. Often the metrics don’t fit together so they keep adding to it, and have got a whole lot of metrics now, all telling them different things and it’s not fitting together to give a coherent picture. That’s the area where companies are starting to change. They often try and encapsulate what their metrics are, through compelling stories that make sense in different parts of the company. We love the business analytics, particularly the predictive analytics that allows you to intervene in real time and say to a customer, “Oh I see you running little on X, or I see you could use this kind of help.”

But at a higher level in the organization, it is important to have a compelling story that links together the metrics. It has to identify the direction we need to go and even expect what the customer is going to need next. That will make a difference to the conversation. With this, you don’t end up back in the silo but are actually out there partnering with the other functional areas of the organization.

There are a lot of metrics available now, but at a higher level in the organization, having a compelling story that links together the metrics is important.

Sanjog: Predictive is good, but when we are not even skilled at measuring where this customer is finding value, how will you know if the customer is not happy with you on many levels? They’re coming to you, not for your product or service but also the experience that you offer them. We’re doing predictive analytics that is so centric around what you’re going to deliver next or what the customer is going to want. But whatever they want, doesn’t lend itself to you delivering it to them, how do we tackle back part of analytics? Again, coming back to making IT part of that conversation so that everything else that they do for creating that experience, also starts getting affected and they have that common goal in mind versus an IT project to complete.

Ruth: Yes, the way you describe companies using predictive analytics in this very short runway, you’re always going to be running to catch up. Somebody tweeted on Twitter, “I’ve got to resolve this customer complaint.” But that’s running to catch up. When we talk about using predictive analytics, we want to be thinking about this in a strategic sense. It should be, if we make this kind of investment, can we actually see a shift because of the strategy. This shift will enable us to generate more revenue. We need to have more forward-looking focus because you’ve can’t be reactive. Chasing after things is not a way to grow a business. You have to get out in front.

Sanjog: To that end, to give an example. I was on an e-commerce site. While they had very cool ways to show the information, as soon as I moved on to my mobile device, I started getting notifications on how you can benefit if you were to buy this, this, and this. All that is okay, so I thought of giving it a shot, buying something from them. But then having a return processed or if something went wrong, or the product did not reach us on time as they promised, could be a problem. All my predictive analytics told us, what will this customer buy in the future? I, in a way, trust that provider that they will give me a good experience. The scope of analytics that we’re talking about should not be the crystal ball, but also, provide an experience because that got a direct impact on the CLV.

Ruth: That gets back to, it has to be a 360-degree view of the customer. If you look at those early stages, while they got your engagement, got you excited, it fell apart on the back end. Of course, that’s a classic technology problem where our legacy systems don’t mesh with our nice modern technology that we’ve introduced to handle some of the early stages. That’s a very common problem in retailing. But we’re seeing now a lot of retailers have overcome it, of course. If you don’t have that seamless experience across all the functional areas and also customer experiences, you let the customer down. You’ve made a promise to the customer, like that company made a promise to you in those early things that they did, and then they couldn’t fulfill on that promise.

If you look at those early stages, while they got your engagement, they got you excited, they got awareness, they got interest – it fell apart on the back end. Of course, that’s a classic technology problem

Sanjog: One is to talk about legacy systems or a system not put together and we could bash it. It’s easy to do, but I could have built the best system, but the person who we’re dealing on the phone or chatting with you online as a customer, may not be doing what they were supposed to do. So they have the tools but they’re not enabling engagement. The customer lifetime value is also dependent on the engagement. That means that a person needs to be motivated and that motivation could come from some HR insights that a company would have. So on the surface, we may not to look at this link. But, there’s an impact. IT can invest in a system which will provide all information in 360 degree view. But if that system which is working behind the scenes, which helps you get the insights about this individual is not working well, who is going to represent your company to the customer?

Ruth: Yes. That boils down to two things. One is information sharing, so that front line employee or their supervisor has the information they need. Secondly, support. If you start to look at where IT investments are being made, you see a lot more being done for supporting employees because they will interact with the customer and co-create that value.

An interesting example, in the B2B environment, there is some field service organizations for which technology is a boon because now all these things can be up there in the cloud, whether it’s specifications, customer information, or videos. But when the field representative is talking to the customer, we can’t have that employee looking down at his phone or his tablet or his laptop when he’s supposed to be looking at the customer who he is serving.
There’s that last step of having a rapport between the employee and the customer in that interaction, which doesn’t happen when there is only technology at play.

But still, that last mile needs to be traveled, to make sure that’s is coordinated.

But the great news on that is, and I’ve heard this from managers too, is younger employees have grown up with this stuff. It’s natural to them as breathing. For them to use technology to look things up, to be considered as a supportive resource, they are there already. The problem is not all our employees are in that cohort. We have a mix of employees and so we have to think about how we manage those employees.

There’s still that last mile to go there making sure that we’ve coordinated what’s happening on the technology side with how it’s being deployed through our people …There’s that last step of, having done all this great stuff to enable and support the employee but in fact if there’s no rapport between the employee and the customer in that interaction, it doesn’t happen.

Sanjog: When you are referring to multi-generational teams, and technologists need to support and come up with innovation, now CIO has a seat at the table in the executive management room. They can help, what do you think that but what is the CIO to do, besides the superficial trends that they can help capture? For example, the area that I mentioned, like that HR system which could make a whole lot of difference if you knew how to profile a frontend rep.

Ruth: Yes. There are a lot of those hidden opportunities. There is one in HR. Another one is actually that sometimes the data that the IT department develops and manages is in itself sellable. It can be sold to others or it can be used to identify opportunities. There can actually be a whole component to offer to say the sales area can claim to have the capability to offer customers some new services. There’s a lot of those hidden opportunities that technology has to offer. In addition to the classic one which is, of course, efficiencies in operation. There’s a different sort of language depending on which part of the organization you’re speaking to, whether it be HR, sales, operation, they have something to offer each of these.

Sanjog: You worked in marketing and/or serve that function. You know that in today’s day and age, every function in a business has to come together and work towards one common goal. At least that’s what to ask is from the top management. But then when we see the people who may be in marketing, in customer service, in operations, supply chain, and IT. Each of them have different measures of success in their respective roles. If CLV (Customer Lifetime Value) centric optimization has to be done, then this has to be included as a measure of someone’s success. Could it be exactly defined for all of them in the same way? Perhaps not, but then what would your measurable goals be, that we set for each individual in each different function, what would those look like?

The customer lifetime value related measures or goals can be assigned to different department leaders and members, such that we are all thinking in one direction because today as we speak, they all have different measures of success. Alignment is not going to be a natural outcome.

Ruth: Yes. If you think of customer lifetime value as like an umbrella, or the overarching thing that ties everything together, you can imagine the metrics in your organization as being a little bit like a triangle. At the top, you’ve got this golden customer lifetime value, some to cross all the customers. As you push down into the organization, you have identify metrics that are meaningful for different levels of management all the way down to the frontline. These also have to be meaningful for different functional areas.

For example, if you’re in the operations areas, there’s process metrics, trouble reports, late deliveries, product defects, and billing errors. Those are very good leading indicators of customer metrics downstream because they link directly to customer satisfaction which links to retention. That in turn links the customer lifetime value. Those makes sense in the operations area. In the area of engineering, there’s a bunch of different process metrics as well so that you can think about using some of them. However, if you’re in the sales area, you think more about dollar value of cross selling, migration to higher margin products and services, and customer loss rates. Things are more meaningful in that area.

The key is, you need to have a little map that syncs these things together up to that top, to that customer lifetime value, so everyone understands where they fit within the picture. Yeah, there’s a piece around engagement that sort of gets those people to be aware and interested. If they’ve downloaded the app, we need to make sure that last metric is covered, because that where that conversion to trial and then repeat occurs.

What you would find in some organizations is that in that triangle with hierarchy of metrics, there are some big holes. There you want to at least plug in some kind of a metrics, to capture the link to contributing to customer lifetime value. All parts of the organizations understand that.

Sanjog: Would you say that the set of steps that you mention about building those metrics could be the first chapter in the playbook. So if in the first chapter is, when you find the holes you will fill them. But then do you invite IT to ask if they can help get data for this. Secondly, based on my data, can you help to do certain things which will help me produce a better result? Collaborating that way, do you think that could be the second chapter?

Ruth: If you want to get early success stories, each group needs to have some metrics that show how we’re contributing to customer lifetime value. Then we ask IT for help and we work together, make it work and form a success story that motivates and convinces another team in the organization. That’s exactly how it works. That requires know-how, but more importantly, it requires a collaboration between IT and every other functional area, failing which neither is going to know what the other is doing. Very early in my career I saw some unpleasant situations where IT was making radical changes and they had no match with sales and service. There were literally shouting matches, and the leaders of some teams in a room and saying this is promised, but I can’t deliver it.”

There’s a major gap right there. There’s some work for getting everybody on the same page, and this is exactly the way that you could do it.

Sanjog: Yeah, because what our finding is that IT people definitely don’t want to mess up. They’re not coming to do that, they want to do the best they can.

The approach that technology leadership has taken is to build good relationships, and to be of value. But often, people in business could be their worst enemies because they would not know what to ask of IT. IT would not know what to deliver which will make these people successful. Do you think if we went this route, this framework that we discussed is to say, is this how IT ever talks? Teams need to know what you are to be measured by and into that end, what they can deliver so that it not only allows you to measure what you are delivering but also improve what you’re going to be measured by. Also, at any given time you have complete clarity. You grow in your own group and in that process, IT improves and it gets aligned to the customer lifetime value.

Ruth: An important thing to remember here is, people manage what they can measure. But if there’s one thing that they dislike, it’s to be assigned a metric that they don’t have control over. Sometimes, people from the outside looking at IT, feel they’re generating enough metrics. But, those aren’t meaningful, since for all purposes, they’re only a slice of the picture. If the dialogue is needed, it has to be about what it’s going to be a meaningful measure that we can agree upon, as opposed to having thousands of these out her. The data that is meaningful and that I have some control over- makes sense for me. This is because if people can’t control it, there’s going to be a real morale problem. When they see that they’re trying their best, they’re doing everything they can but they can’t budge their metric that is the worst possible situation to be in. It’s a little confusing and frightening for people to see the organization unable to handle some of these things. Or you see a little blip, but then you can’t repeat it because they are fighting fires and not focusing on the long run. You also need to make sure that that metric is stable, not bouncing around a lot because that’ll create even more uncertainty and chaos. However, something that is sensitive enough to change, when somebody can tell when they’re improving but not careening around in wild ways that cause more trouble, then they are a help.

That’s tricky, it means you have to think a little bit about the behavior of that metric and how human beings respond to them.

…we ask IT for help and we work together, make it work and form a success story that motivates and convinces another team in the organization

Sanjog: Would you say that the model violates the current metric the way IT is measured today? That means the IT metric should be developed by the line of business leaders and not the CEO?

Ruth: The CEO usually pick some very high-level metric. Net Promoter was a big one for a while but they’re using it from a strategic point to rally the troops. At lower levels you have to drill down the way we’ve been talking about. It’s good to have these gold standards that metrics can roll up to, but from any kind of daily or quarterly management, you need to be able to drill down to this.

Sanjog: One last question for you. Given the current dynamic business environment, what mindset shift is required for the management and for the leadership to enable the CLV driven IT?

Ruth: You are right, this is a good time. Financially, things are better and we have an ability to make investments in technology. But now’s the time to think through some of these different options on how it’s used, and how will that move the needle on customer lifetime value. If that’s a difficult question, we need to see how the investments in the intermediate and lower levels closer to the front-line metrics are impacted.

That’s the wonderful thing about the world we’re living in now. It is possible to think about making changes and then seeing the impact almost real time.

You hear about companies like Amazon doing marketing experiments all the time, and every company can do that. Fortunately, we’re in a place right now where we can learn and decide what we want to do.

Sanjog: On behalf of the show and our listeners, thank you so much, Ruth.

Contributors

Ruth Bolton, Professor of Marketing at the W.P. Carey School of Business, Arizona State University

Ruth N. Bolton is Professor of Marketing at the W.P. Carey School of Business, Arizona State University. She is the recipient of the 2016 American Marketing Association / Irwin / McGraw-Hill Distinguished Marketing Educator Award and the 20... More View all posts

Ruth N. Bolton is Professor of Marketing at the W.P. Carey School of Business, Arizona State University. She is the recipient of the 2016 American Marketing Association / Irwin / McGraw-Hill Distinguished Marketing Educator Award and the 2007 recipient of the Christopher Lovelock Career Contributions to Services Award. Both awards are given to only a select few marketing academics; they recognize distinguished service and sustained outstanding contributions to the field of marketing. She previously served as 2009-11 Executive Director of the Marketing Science Institute. Dr. Bolton studies how organizations can improve business performance over time by creating, maintaining and enhancing relationships with customers. Her recent research has focused on the customer experience, multi-channel management and high technology, interactive services sold in global business-to-business markets. She previously held academic positions at Vanderbilt University, the University of Oklahoma, Harvard University, University of Maryland, and the University of Alberta. She also spent eight years with Verizon, working on projects in the telecommunications and information services industries. Dr. Bolton's earlier published articles investigate how organizations' service and pricing strategies influence customer satisfaction, loyalty and revenues. She has extensive experience with survey research design, as well as the econometric analysis of large-scale, integrative data bases. Her research is typically conducted in partnership with businesses, such as the Marriott Corporation, Hewlett-Packard and Schneider National Inc. She has also participated in executive education programs around the world. Dr. Bolton has published articles in the Journal of Consumer Research, Journal of Marketing, Journal of Marketing Research, Journal of Service Research, Management Science, Marketing Science, and other leading journals. She previously served as editor of the Journal of Marketing (2002-2005) and Area Editor of the Journal of Marketing Research (2005-2007), as well as serving on the Editorial Review Boards of other leading marketing journals. She has also served on the Board of Trustees of the Marketing Science Institute and the Board of Directors of the American Marketing Association. She received her B.Comm., with honors, from Queen's University (Canada), and her M.Sc. and Ph.D. from Carnegie-Mellon University. LessView all posts